As WPP Group Plc. CEO Sir Martin Sorrell continues to take centrestage this week in India’s media and advertising world, Mint is bringing a three-part, first person account of his views on what will drive the world of advertising and marketing services in 2007 and beyond.
On Friday, Sir Martin wrote about globalization and Americanization. Today, he focuses on China and India. Monday’s Mint will carry other conclusions from his account, dubbed The Advertising & Marketing Services Industry: China and the Internet. Edited excerpts:
China and India: a different world
It is difficult for those of us in the West to comprehend the scale of Asia Pacific’s potential development. China is not just one country; it consists of more than 30 provinces, with so many languages and dialects that Mao Tse Tung needed an interpreter. The population may well be closer to 1.5 billion rather than 1.3 billion. The Chinese government seems to consistently underestimate its statistics, like those for GDP growth. But it is still equivalent to four or five Americas.
It is true also that currently only 150-200 million Chinese can afford the goods and services we are trying to market to them. However, this is already equivalent to over half an America and this is a dynamic situation, one that will change rapidly in the coming years. Already, there are almost 500 million mobile phone subscribers in China, 300 million of which subscribe to one company, China Mobile (one of the top five most valuable world brands)—that’s equal to the total population of the US. Furthermore, India—itself equivalent to three to four Americas—seems to have been stimulated into more rapid growth, driven perhaps by neighbourhood envy and the Chinese model of state-directed capitalism, although they bill themselves as the world’s fastest-growing democracy.
Do not underestimate the potential of the region as rapprochement spreads even to cricket, with the Indian-Pakistani test and one-day series representing as important a political, economic and social signal as the Beijing Olympics. Or look at the dog-fight for Hutchison Essar Ltd, which Vodafone won, in a market growing at five million subscribers per month, just like China.
World Watch: India, Sir Martin Sorrrell says, seems to have been stimulated into rapid growth, driven perhaps by neighbourhood envy and the Chinese model of state-directed capitalism
Asia Pacific will dominate again. This really is back to the future. In 1820, China and India generated around 49% of worldwide GDP. In the early 19th century, Meissen and Wedgwood were dismantling the high-quality, high-price Chinese porcelain industry, with similar quality but low priced porcelain. It is the exact reverse today. In 2025, these two countries are forecast to be headed for the same level of world GDP, having bottomed out at 8% in 1973.
Currently, China and India represent over one-third of the world’s population. Asia Pacific represents one-half. By 2014, Asia Pacific will represent over two-thirds. Greater China is already WPP’s fourth largest market in which we have a strong 15% share.
In India, our market share is almost 50%, with a 25% share in South Korea. In Japan, it is almost 10%, behind the dominating Dentsu and Hakuhodo DY Group. In Indonesia, we are ranked number one, with the lion’s share of the market.
China’s development has been rapid and will continue. The Chinese government is conscious of potential overheating and an imbalance in regional rates of development between the coastal regions and the hinterland.
There has already been a very soft-landing slow down in growth, presenting more opportunity for investment. 2008 represents a huge opportunity. No self-respecting multinational company bent on expanding into China or national company seeking to grow inside or outside China will miss out on the branding opportunity presented by the Olympics in Beijing. The Chinese government is already committed to $45 billion (Rs1.8 trillion) of investment around the Games (the UK government will probably invest $10 billion in London 2012), in a year that will also be stimulated by the US presidential election. 2008 should be a whopper. And it will not end there. The Municipality of Shanghai will be investing $3 billion in Expo 2010. And there will be the Asian Games, in Guangzhou, again in 2010. Watch out for growing Chinese military influence. Recent economic contact with Fidel Castro in Cuba counter balances Taiwanese tensions. Chinese investment in Galileo’s GPS systems drew a coruscating response from the Pentagon. Beijing will not be prepared to rely on America to defend its vital and growing energy supply interests in the Middle East and Russia. It is busily building trade bridges throughout the oil-and energy-producing areas of the world, particularly in Latin America and Africa.
China is changing the political dynamics of Africa, in particular. Increasingly, Africa is the continent of opportunity, rather than the continent of war, disease and poverty. President Gadaffi’s volte face has energized North Africa and Egypt, and China’s focus has drawn the attention of Western governments seeking to curry favour, too.
The other challenge to American dominance may well come from the Muslim world. Already, Muslims number 1.5 billion people or a quarter of the world’s population. By 2014, they will account for 2.1 billion or 30% of the projected world population. The recent struggles in Afghanistan and Iraq, and possible action against Iran, really only continue the conflicts of the 1950s in Suez, the oil price increases of the 1970s and the invasion of Kuwait in the 1990s. Westerners have made little attempt to understand the Muslim mind and assume they have the same value systems and beliefs. They are different and it will be increasingly necessary to make a serious and sincere attempt to understand them. These events may demand new thinking from the world’s multinational companies. As US-centric companies, for example, seek to develop their businesses and extend their reach into more heterogeneous markets, it may well be that the balance of organizations will shift. There will continue to be a focus on global, max or core brands, with sales of more than $1 billion, particularly to counterbalance the power of global retailers and as companies become less dependent on the US markets. Coca-Cola’s geographic coverage of a third in North America, a third in Europe and a third in Asia Pacific and Latin America will become more the norm, rather than Pepsi-Cola’s 59% in the US.
The end of regional management?
However, given this geographic expansion, there will also be a need to develop more sensitive, local organizations that respond to national opportunities and challenges more readily.
The past 10 to 15 years have seen, quite rightly, a diminution of power of country managers, as companies sought to reduce needless duplication and stimulate the sharing of knowledge. Eradicating geographic silos and fiefdoms made sense. But as country-based organizations have become more complex and sizeable, there may be a need to develop more focus at a country level.
Several clients have started to re-build country organizations and re-appoint country managers or ambassadors, particularly as their organizations become more complex at a country level and they need to build governmental or academic influence. As a result, regional management has been scrutinized. With the development of technology and communications, organizational span-breakers may not be so necessary. In addition, given the complexity of regional tasks, regional managers become glorified financial directors.
At WPP, we are experimenting with two new organizational responses. First, Global Client Leaders to manage big clients across WPP on a worldwide basis. Second, WPP Country Managers focusing on three key issues—people, local clients and acquisitions. Both responses cause angst to our operating company or tribal leaders who continue to have primary organizational control. Both cut across the traditional organizational structures. Both demand new ways of working together, denying turf, territory and ego. Both raise questions about motives, methods and values. But both are necessary, responding to client needs and developments. Organizations are becoming more and more networked, less and less pyramidic. Perhaps, the 21st century is not for tidy minds.
Too many cars, not enough talent
The single biggest long-term issue facing our clients in most industries is overcapacity.
In fact, it is difficult to find many cases where the opposite is true; tequila, perhaps, where it takes seven years to grow the herb, or high fashion companies such as Rolex or Hermes where supply is limited. It is also true that commodity-based industries, such as oil and steel, no longer face overcapacity issues, being overwhelmed by Indian and Chinese demand.
But most industries face situations similar to the car and truck industry, where companies can make 80 million units and consumers consume 60 million. Overcapacity issues are particularly difficult to deal with in politically-sensitive industries such as automobiles. Governments are not enthusiastic about shutting down capacity and increasing unemployment. They also like to increase capacity by offering inducements to locate new production facilities in development regions. Thus, the best thing for the European car industry would probably have been for GM to absorb Fiat’s production capability. But Silvio Berlusconi, then Italy’s Prime Minister, could not countenance more unemployment in the Mezzogiorno.
The critical issue in the 19th and 20th centuries was how to produce goods and services, and to make sure they reached the consumer.
In the 21st century, it is convincing the consumer to purchase products, services or brands in the first place. In such circumstances, differentiation becomes critically important, and differentiation is what our business is about. Historically, maintaining technical or product differences was easier. Today, keeping a technological lead is difficult.
Product life cycles are being shortened and brand cycles lengthened. Again, an example from the car industry; less than a decade ago, it took five years to design, produce and market a car. Today, it can be done in 18 months. Led by the aggressive Japanese, South Korean and German manufacturers, the Americans have followed. In the future, the Chinese and Indian manufacturers will stimulate further response.
Intangible differentiation is, then, becoming more important.
Psychological, lifestyle and emotional differences are significant. The suit or dress you wear, the car you drive, the holidays you take, how you spend your leisure time—all say a lot about your personality and preferences. Some find such intangible appeal immoral or at least unsavoury.
Preying on people’s vulnerabilities, it is said, is unethical. However, we believe that fulfilling people’s desires or dreams is almost always justifiable and satisfying for the consumer—and it is a key role for the advertising and marketing services industry. While there is certainly too much production and capacity in general, what specific resource in the 21st century is in ever shorter supply? The answer is human capital. Every demographic statistic points to a reduction.
All this points to the growing importance of attracting, recruiting, developing, training, motivating, incentivizing and retaining human capital.
In a less differentiated world, it will become more and more important for companies to stand out through the quality and responsiveness of their people.
Making sure that your people buy into your strategy and structure will be increasingly important. Living the brand—operationally—will be critical.
In Monday’s Mint, Sir Martin on Web 2.0 and Google’s impact on advertising.